Source www.trendwatch.co.uk 1 September 2004

January 14 2005 is a date that will soon be engraved on the hearts of anyone managing or owning any insurance company, large or small. On that day, almost all general insurance companies, including insurance brokers, will be regulated by the FSA.

Trendwatch publications is, of course, also regulated by the FSA. As a media business, compliance with the massive FSA rule book is considerably less onerous than it is for business that hold client money for investment or insurance purposes. Even so, grappling with the FSA can be like mud wrestling a multi-headed hydra.

To give one small examplee, we recently found out that, to add letters Ltd after ourname )no other changes to the business whatsoever) requires the completion of between 50 and 60 pages of forms and the preparation of much other supporting documentation. The FSA will not even deign to look at it unless it is accompanied by a cheque for 1,500. If everything then seems to be in order, the FSA undertakes to deal with the matter within 6 months.

If, in our infinte naivete, we had failed to realise this palava was a legal requirement, the MOther of All Parliaments has decreed that we would be committing a criminal offence, and liable to be detained at Her Majesty's pleasure at a house of correction and her learned judge's choosing.

This is what the FSA regards as'light touch' regulation which minimises disruption and cost ot businesses.

Now imagine how tricky things can get if you attempt something really complicated such as taking on a member of staff.

The FSA estimates that it already has about 10,000 in the mortgage and general insurance field by the short and curlies. It estimates that at least another 10,000 business will be dragged kicking and screaming into the brave new world of 'light touch' regulation. Around 2,500 insurance brokers will be lightly touched by the FSA on January 14.

But, as everything in life, one mans Kafkaesque nightmare is another man's business opportunity. Which brings us to Broker Network Holdings (BNH)

BNH floated on AIM as recently as May this year (raising 2m in the process), so most investors will know little about it, if indeed they've heard of it atall. We're recommending it because we feel that burgeoning profitability will soon make it a lot better known.

As the name suggests, BNH exists to build a network of independent insurance brokers, all operating within the BNH framework. This follows a path wellbeaten by IFA's, accountants and dentists. BNH is the longest established player in its field and believes that it has a stronghead-start, and a great deal more credibility than other 'me too' imitators.

The system works like this: as an independent insurance broker, you undertake to pay 95 a month to BNH. You also undertake to pass all your insurance business premiums through BNH. BNH places the insurance business with the giants such as AXA, Norwich Union, Royal and Sun Alliance and Cornhill. The members receive enhanced commission from the insurance companies because of the preferential status granted to BNH. Since BNH deals with the placing of the insurance, this greatly reduces the credit risk of the individual members.

BNH takes 1.5% of the premiums from its members and, in return, provides members with a number of valuable support services, including access to Lloyds of London, centralised back-office IT support, marketing assistance, access to e-commerce, staff training and development, business management and monitoring... and FSA compleance support.

BNH is also prepared to purchase broking firms outright where the opportunity presents itself. There are believed to be a large number of small owner-managed brokers where the owner is approaching retirement. For many of them selling theri business to BNH, typically for around 0.3m, rather than grappling with the FSA, is probably an attractive option. So far BNH has acquired 9 such brokers.

Since it was founded in 1994, it has absorbed 133 brokers into its network and plans to acquire about 90 more over the next 5 years. Out of the estimated 19bn paid in insurance premiums in the UK every year, an est 80% is handled by insurance brokers. Most of this goes to through the big brokers, but about 3bn a year (typically commercial rather than personal business) is processed by the 2,500 small so-called 'community brokers' that form the BNH network.

hat represents the extent of BNH's market pond.

At time of floatation, BNH est that no more than 12% of its target broker had aligned itself with any particular network. Clearly there's plenty of scope for growth.

The company is already profitable. Its last full year results were published in July and showed a profit for the principle trading subsidiary - the PLC holding company had not yet been created - of a record 0.77m up rom 0.70m. 27 new members were taken on.

Brewin Dolphin reckons it will make 1.77m this year, rocketing to nearly 3m in 2005-06. If these estimates are correct, it puts BNH on a forward p/e of 6, which is extremely low for the sector, especiallyfor a company whose profits are growing at such a rapid rate

BUY

Mentioned in shares magazine today apparently... haven't got the issue. It is only a small article. Can anyone post it please??

legend,

This share is hibernating and the sp is gradually going down. When is the next trading statement? Thanks.

ramu

Not hibernating, just a lack of news flow. If you wait for the next acquisition, it might be accompanied with a statement from the chairman about performance... He has done this with the past few that have been taken over.

In terms of a trading statement itself, I would expect april/may. I can't see it being anything but AHEAD/IN LINE with market expectations.

Shares mag tipped it as a buy yesterday saying that it is only a matter of time before people realise the potential. I took the opportunity to top up yesterday.

Don't panic over these retracemnts. Market Makers are in it to try and make as much money as they can...

Legend

there is a chance that income created by BROKER NETWORK will be subject to VAT.
this will be a disaster as charges to insurance brokers will be as before plus 17% vat. broker network will have to absorb some of this 17% and so their operating margins will be reduced....and it will be more difficult to take on board further insurance broker customers. insurance brokers cannot recover VAT

this move has been announced by CUSTOMS AND EXCISE but, as yet, not been implemented. most of these type of TAX CHANGES come from the EU.

as i have intimated previosly broker network is a logical operation and well led...always providing it ceases its silly aim of actually buying the business of insurance brokers. that silly action results in it being a business of (in part) insurance brokers in lieu of being solely a 'broker network'

incidently other broker network operations will appear...but broker network is established on a solid basis

legend,

Have you sold some BNH? SP down again!

ramu

Not sold one, thinking about adding if I am honest.

Don't worry Ramu, not concerned one bit ;-)

legend,

Take a look at ADVFN board - it has come alive!!

ramu

I do go on there from time to time... i rarely post. Who are you on there??!!

Have just had a look, I was interested to read that bloke called Sharegod was trying to pick up stock but couldn't. One MM wouldn't deal 10k and the other offered 112!!! Shocking.

I have faith, I am not concerned a bit. You will be rewarded by staying in.

Legend

Legend,

I have not posted in ADVFN board for BNH. Anyway, you will spot me easily - I am known as ramu231. What are you known as?

Ramu

why the fall - is anyone aware of the reason apart from profit taking or is it this vat thing - like others I am more inclined to top up but when is the next newsflow due?

I have topped up today...

No reason oxman for fall... the chairman only sent out a newsletter a month or so ago explaining how well things are going...

Nothing to worry about IMHO.

Hi all,

Just to let you know that I am still holding and are happy doing so... just a lack of newsflow has caused the price to drift back.

Story still the same. I still think these are worth 1.50 and intend to hold until it at least gets there.

I am very conservative with my forecasts and I think it is best to look at things pessimistically rather than too optimistically (i hope those two long words are spelt right!!).

Would love to hear from any of you.

Remember, he who dares, wins, he who hesitates don't. Just watch this space..... ;-) As always time will tell.

Regards, the legend

The smart ones will stay in this stock... Looks like there has been interest these past few days.. perhaps an RNS soon??

Good luck all

A bit quiet on the old BNH front... Was glad to see an acquisition on april 1st. Only one more now to reach the target. I am sure they will get it.

Would expect to get some coverage soon as it is coming up to a year since they floated.

Everyone else still holding??

Legend

Hi again all, there is a broker meeting tomorrow which should be good. My broker is attending. I will let you know what went on.

Legend

From all I have heard and read about Broker Network it is a quality company and going places. So why the nose dive over recent weeks?

It wasn't very long ago that this was touching 140

Thank god someone has some sense....

Absolutely right Balli. In fact... my broker went to the meeting on friday. Apparently:

Everything is in line if not better.

At LEAST one more acquisition WILL be announced before results (which means the target WILL be hit) plus there are plenty more in the pipeline.

The acquisitions already made have on average 1.1 earnings instead of the budgeted 1.3, plus the acquisitions have performed much better than expected.

Also since regulation date, BNH has seen more and more enquiries from brokers that have had enough.

All in all, I am happy to hold and see no reason to panic. With 3m cash in the bank the group still look cheap.

If i could afford to I would fill my boots now.

would buy more, but irrational fall in sp puts me off - still think it is oversold and on positive newsflow should bounce strongly, thanks for update from meeting.

the Revenue are taking a fresh approach to certain sevices in the insurance sphere....so there may be a chance that vat could apply to part of the income of broker network. the introduction of an element of vat would not be good

i can say that it is 100% definite that the operating costs and difficulties in the insurance broking world are and will become much much more difficult...if not impossible. if insurance brokers struggle and do not florish financially then that is bad , in the long run, for broker network. in addition the horrible rules and regulations make it much for difficult for broker network to keep a clean nose

insurance brokers and insurers have greatly underestmated the overall impact of regulation vis the FSA

Legend, how do you think introduction to VAT will affect the price in BNH?